📊 Loss Sensitive vs. Guaranteed Cost Programs
Commercial insurance programs can be priced based on expected losses or actual losses. Understanding the difference is essential for brokers and risk managers.
📘 Two Fundamental Pricing Philosophies
Insurance programs fall into two broad categories: guaranteed cost (fixed premium) and loss sensitive (premium varies with losses).
💵 Guaranteed Cost Programs
Premium is fixed for the policy term regardless of losses.
- Predictable — No surprises.
- Common lines — Auto, property, general liability.
- Best for — Small to mid-sized businesses.
📉 Loss Sensitive Programs
Premium varies based on actual losses during the policy period.
- Types — Retrospective rating, large deductibles, captives.
- Best for — Larger insureds with strong safety programs.
- Advantages — Lower long-term cost potential.
- Risks — Cash flow volatility.
